FSCS cuts levy to £833m as claims and firm failures delayed

By Amy Austin.

The Financial Services Compensation Scheme (FSCS) has reduced its levy for 2021/22 by more than £200m to £833m, as it expects firm failures and some claims to be delayed over the next few years.

Back in January, the lifeboat scheme had forecast its levy for the year to be £1.04bn, which was a jump of 48 per cent on last year’s total.

But the FSCS today (May 13) said this has now been cut by £206m for two reasons.
Firstly, firms expected to fail this year could now fail in the 2022/23 financial year and beyond due to the extension of government Covid support schemes.

Secondly, the FSCS said it saw lower claims volumes relating to recent insurance failures than had been expected and there are also a number of self-invested personal pension claims which will now be paid out in 2021/22 rather than this year.

Advice firms are still expected to contribute £240m to the levy. This is the same as last year, due to the fact the class is forecast to breach its funding limits for the second year in a row.

The FSCS stated: “These factors have led to a surplus for the 2020/21 financial year, which has been used to offset the previously forecasted £1.04bn levy.”

Caroline Rainbird, chief executive of the FSCS, said: “While it may be welcome news to see a lower forecast than announced in January, we do not call this a successful outcome or ‘good news’.

“There is still a chance that these re-forecasted failures could occur in the years ahead. We also appreciate the levy, even at this updated forecast of £833m, is too high and the cost could put pressure on firms’ finances.”

Despite the cut, the £833m levy still represents an increase of £133m on the previous year’s levy of £700m.
This is partly due to higher value pension advice claims in the Life Distribution and Investment Intermediation class and failures of Sipp operators in the Investment Provision class.

Retail Pool

As a number of classes are likely to see more claims than they can be invoiced for in a year, the £833m levy is expected to include £116m from the retail pool, a drop from the £252m forecasted in January’s plan.
This is a separate pot that other FCA classes are required to contribute to if they have not reached their maximum levy limit, and another class has exceeded its limit.

As the full impact of Covid-19 is still unknown, there are a number of uncertainties around the number, size, and timing of any potential future failures, the FSCS said.

Therefore it has adopted a flexible approach to collecting levies allocated to the retail pool and has proposed that levies are not raised and invoiced to levy payers immediately.

Instead, it will be raised later in the year, at a point when the amounts required are more certain – but still in time to ensure the lifeboat scheme has the required liquidity to pay claims.
The FSCS said it will provide an update as soon as possible and will give the industry 30 days’ notice before invoices will be issued.

Rainbird added: “We are doing all that we can to help reduce the levy and are delaying calling for the retail pool to avoid invoicing for more than we need and to help spread the costs.
“Ultimately, to deliver a sustainable reduction in the levy over time, all stakeholders, including the industry, need to work together to tackle the root causes of the problem, to help drive better outcomes for consumers and a reduction in the levy.”



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